Businesses can seek advance ruling on tax liability under GST

New Delhi: The government has allowed businesses to seek advance ruling on tax liability of any deal or valuation of goods once the Goods and Services Tax (GST) is rolled out from July 1.

Seeking to lessen litigation by providing certainty in tax liability in advance, the GST Advance Ruling Rules says the members of the Authority of Advance Ruling (AAR) would be appointed by both the Centre and states.

The member would be a Joint Commissioner having the experience of not less than three years in the rank. The Central GST (C-GST) Act says that 'advance ruling' can be obtained in relation to the supply of goods or services or both being undertaken or proposed to be undertaken by a taxpayer.

Under the current regime, domestic companies can approach the AAR for ascertaining excise or service tax or customs liability if they are entering into any new line of business.

However, the GST rules have kept it open for any company to seek an advance ruling on taxability. Experts said that setting up of the AAR under the GST is a positive development as in the initial days of the GST, there would be lots of queries over valuation, classification of goods as well as ways on availing input tax credit (ITC).

"The plan to set up the AAR shows government's resolve to prevent litigation. They have come out with an AAR mechanism so that people do not have to wait for audit to ascertain the tax liability," Deloitte Haskins Sells LLP Senior Director M S Mani said.

Currently, there is only one AAR in the country and it is in the national capital. Mani said since in the GST regime there would be doubts in the minds of taxpayers and hence the Centre and states should decide to set up more AAR offices under the new regime.

"The AAR could be set up modelling the Cestat. As many as 8-10 AAR offices need to be set up under the GST regime for faster pronouncement of orders. Each office can be given the jurisdiction over a specific region," he said.

Currently, the AAR has to give its rulings within 6 months from the date of receipt of the application. Besides, Customs, Excise and Service Tax Appellate Tribunal (Cestat) offices are present in 10 states including Delhi, Mumbai, Kolkata, Chennai, Bengaluru and Hyderabad.

Cestat acts as an independent forum to hear appeals against orders and decisions passed under Customs Act, Excise Act and Service Tax Act. The rules on Advance Ruling under the GST would be taken up by the GST Council, comprising Union and state finance ministers, in its meeting on May 18-19. The GST is being hailed as the biggest tax reform since Independence and is supposed to make it easier to do business by reducing compliance requirements.